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BETHLEHEM CITY COUNCIL MEETING

President J. Michael Schweder called the meeting to order.
Reverend Lori Leib, of Bethany United Church of Christ, offered
the invocation which was followed by the pledge to the flag.
Present were Ismael Arcelay, Jean Belinski, Robert J. Donchez,
Joseph F. Leeson, Jr., Gordon B. Mowrer, Magdalena F. Szabo,
and J. Michael Schweder, 7.

4. APPROVAL OF MINUTES

The minutes of October 19, 2004 were approved.

5. COURTESY OF THE FLOOR (for public comment on ordinances
and resolutions to be voted on by Council this evening)

Pension Bond Issue – Unfunded Actuarial Accrued Pension
Liability

Chuck Nyul, 1966 Pinehurst Road, focusing on Bill No. 49
– 2004, Pension Bond Issue – Unfunded Actuarial
Accrued Pension Liability, questioned whether the Bond Issue
will get rid of the problem that he said was the increase
in pension payments the City keeps giving pensioners. He asserted
now it comes to the point when the City must pay for all of
this. Recounting that Bethlehem Steel pensioners left the
company with a certain amount of pension, Mr. Nyul informed
the assembly that he has been receiving the same amount of
pension from Bethlehem Steel for 19 years and it will not
go up. Mr. Nyul, stressing that the City cannot give pensioners
money every year and then decide it has to float a $35 million
bond, remarked “get rid of the problem, please.”
Communicating that the Mayor and City Council are the solution
people, Mr. Nyul ask that they try to come up with a solution.

William Scheirer, 1890 Eaton Avenue, noting that he spoke
with Dave Killick, Actuary, and a majority of Council Members
about the issue of the Pension Bond, said it is his feeling
that Council is not going to permit any jobs to be cut. Turning
to the question of State Pension Aid, Mr. Scheirer advised
he was told that the State Pension Aid every year will be
calculated as if the Pension Bond never occurred. Mr. Scheirer
continued on to exemplify that, if the bond issue resulted
in proceeds that increased the pension fund by 50%, one-third
of the funds will be taken out for purposes of calculation,
then it will be calculated what the City would have been required
to put into the pension fund that year in the absence of the
pension bond, and that in turn will determine the State Pension
Aid. Mr. Scheirer commented that the most optimistic borrowing
plan would have a payment that is only about $1 million less
than the payment that would be required this coming year in
the absence of a bond which is about one mill. Mr. Scheirer
observed two possible advantages to borrowing are making a
good return in the stock and bond markets, and paying less
interest than would be required, and slowly reducing the underfunding
in the pension fund. While communicating the first is problematical,
Mr. Scheirer said the second is more certain but needs to
take into account to the fees involved in floating the bond
issue which are in excess of $800,000 and equivalent to raising
the interest rate by .22 percentage points. Mr. Scheirer stated
it seems to come down to a payment of $3,000,000 next year
can be avoided by borrowing at a somewhat reduced interest
rate but subjecting the proceeds to the vagaries of the financial
markets. Mr. Scheirer said this does not have to actually
be decided today except for budget purposes, and could be
done on one month’s notice at any time.

6. OLD BUSINESS

Special Bethlehem Authority Meeting – November 3,
2004

Mrs. Belinski notified the Members that she attended a special
meeting of the Bethlehem Authority today, November 3, 2004,
at 8:30 a.m. Mrs. Belinski informed the assembly that at the
meeting approval was given for the City to borrow from the
Bethlehem Authority $2 million to pay bills by the end of
the year. Mrs. Belinski continued on to relate that one of
the Bethlehem Authority Board members asked what happens next
year if the water usage is low again such as this year due
to a rainy season, revenue obtained in previous years is not
received, and the debt service fund of the Bethlehem Authority
gets lower and lower. Mrs. Belinski queried “what if
next year the City comes to borrow again and the wells run
dry. What do we do then.” Pointing out that another
discussion ensued at the meeting about what other assets the
Authority has, Mrs. Belinski related that James Broughal,
Bethlehem Authority Solicitor, said “land sale.”
Mrs. Belinski recalled a few weeks ago, David Brong, Director
of Water and Sewer Resources, presented the strategic planning
initiative. However, Mrs. Belinski stressed “we know
what has to be done at the Filtration Plant [and]…at
the Sewage Treatment Plant.” She continued on to say
there are very good experts who will take care of the watershed
and timbering if it happens, and added that water has not
been able to be sold for six years so “we’re still
hoping for that miracle.” Mrs. Belinski said she does
not know what the strategic planning committee is all about,
and does not know what plan they are going to devise “except
that they put on the committee two people, optional maybe,
for real estate purposes, real estate agents. Why do they
need real estate agents. I said at our Council Meeting just
recently I think you’re strategic planning committee
is all window dressing because what you’re really about
is selling our land up at the Watershed.” Mrs. Belinski
remarked that the $50,000 given to Peter Wernsdorfer, facilitator
to the strategic planning committee, could be saved since
he is not needed.

7. COMMUNICATIONS

A. Assistant Fire Chief – Designation of Agent for
PEMA

The Clerk read a memorandum dated October 19, 2004 from Michael
Sankovsky, Assistant Fire Chief, advising that Mayor Callahan
has designated Mr. Sakovsky as the agent for the City to coordinate
all paperwork and to be a point of contact with the Pennsylvania
Emergency Management Agency (PEMA).

President Schweder stated that authorizing Resolution 11
B is listed on the Agenda.

8 . REPORTS

A. President of Council

Committee of the Whole Meeting

President Schweder announced the Committee of the Whole
meeting on November 4 at 7:00 PM in Town Hall to receive a
presentation on the Five Points Traffic Study.

B. Mayor

None.

C. Finance Committee

Chairman Donchez presented an oral report of the Committee’s
meeting held October 25, 2004, that was a continuation of
the October 18 meeting, on the following subject: Unfunded
Pension Liability. Chairman Donchez noted the Committee recommended
that the proposal for the $35 million Pension Bond with financing
options for a Tiered Match for 30 Years With and Without Principle
Payments to Begin in 2005, and for Level Payments for 30 Years
With and Without Principle Payments to Begin in 2005 be forwarded
to City Council for consideration.

D. Public Safety Committee

Mr. Leeson, Chairman of the Public Safety Committee, presented
an oral report of the Committee’s meeting held November
3, 2004, prior to this evening’s City Council Meeting,
on the following subject: Fire Inspectors. Chairman Leeson
noted that the meeting will be continued to another date.

That the following in Bill No. 48 – 2004, as amended,
which reads as follows:

129. 01 From the date of enactment of this Ordinance until
December 31, [2004], no municipal bonds shall be issued and
sold by the City for the purpose of purchasing items of realty,
or personalty, which items have a purchase price or cost of
less than $50,000.00 [each]. This restriction shall not apply
to expenditures pertaining to economic development related
activities or functions, nor shall it pertain to City government
expenditures for local contributions tied to non-City funding
resources, including state and/or federal loans and/or grants.

129.02. On and after January 1, [2005], no municipal bonds
shall be issued and sold by the City for the purpose of purchasing
items of realty, or personalty, which items have a purchase
price or cost of less than $75,000.00 [each]. This restriction
may be temporarily suspended, only for good cause shown, by
the affirmative vote of five (5) members of Council. This
restriction shall not apply to expenditures pertaining to
economic development related activities or functions, nor
shall it pertain to City government expenditures for local
contributions tied to non-City funding resources, including
state and/or federal loans and/or grants.

Shall be amended to read as follows:

129.01 From the date of enactment of this Ordinance until
December 31, 2005, no municipal bonds shall be issued and
sold by the City for the purpose of purchasing items of realty,
or personalty, which items have a purchase price or cost of
less than $50,000.00. This restriction shall not apply to
expenditures pertaining to economic development related activities
or functions, nor shall it pertain to City government expenditures
for local contributions tied to non-City funding resources,
including state and/or federal loans and/or grants.

129.02. On and after January 1, 2006, no municipal bonds
shall be issued and sold by the City for the purpose of purchasing
items of realty, or personalty, which items have a purchase
price or cost of less than $75,000.00. This restriction may
be temporarily suspended, only for good cause shown, by the
affirmative vote of five (5) members of Council. This restriction
shall not apply to expenditures pertaining to economic development
related activities or functions, nor shall it pertain to City
government expenditures for local contributions tied to non-City
funding resources, including state and/or federal loans and/or
grants.

AN ORDINANCE OF THE COUNCIL OF THE CITY OF BETHLEHEM, LEHIGH
AND NORTHAMPTON COUNTIES, PENNSYLVANIA (THE “CITY”),
AUTHORIZING AND DIRECTING ISSUANCE OF FEDERALLY TAXABLE GENERAL
OBLIGATION BONDS, SERIES B OF 2004, IN THE AGGREGATE PRINCIPAL
AMOUNT OF $35,000,000 (THE “BONDS”), AS PERMITTED
BY AND PURSUANT TO THE LOCAL GOVERNMENT UNIT DEBT ACT, 53
Pa. C.S. § 8001 ET SEQ., AS AMENDED AND SUPPLEMENTED,
FOR THE PURPOSE OF PROVIDING FUNDS TO BE APPLIED FOR AND TOWARD
(A) FUNDING THE CITY’S UNFUNDED ACTUARIAL ACCRUED PENSION
LIABILITY, AND (B) PAYING THE COSTS AND EXPENSES OF ISSUING
THE BONDS (THE “PROJECT”); DETERMINING THAT THE
BONDS SHALL BE SOLD AT PRIVATE SALE BY NEGOTIATION; DETERMINING
THAT SUCH DEBT SHALL BE NONELECTORAL DEBT OF THE CITY; ACCEPTING
A PROPOSAL FOR PURCHASE OF THE BONDS, AT PRIVATE SALE, AND
AWARDING THE BONDS; PROVIDING FOR MATURITIES AND INTEREST
RATES; APPOINTING A PAYING AGENT, REGISTRAR AND SINKING FUND
DEPOSITORY; PROVIDING FOR THE TERMS OF THE BONDS INCLUDING
DENOMINATIONS, DATE, INTEREST PAYMENT DATES AND RECORD DATES;
PROVIDING FOR THE REGISTRATION AND TRANSFER OF THE BONDS;
SETTING FORTH REDEMPTION FEATURES AND PROCEDURES; AUTHORIZING
THE EXECUTION AND AUTHENTICATION OF THE BONDS; COVENANTING
TO PAY DEBT SERVICE AND PLEDGING THE FULL FAITH, CREDIT AND
TAXING POWER FOR THE PAYMENT OF THE BONDS AND PLEDGING, AS
ADDITIONAL SECURITY FOR THE BONDS, CERTAIN STATE PENSION PLAN
ASSISTANCE; CREATING SINKING FUNDS IN CONNECTION WITH THE
BONDS AS REQUIRED BY SUCH ACT; APPROPRIATING PROCEEDS OF THE
BONDS; DESCRIBING THE PROJECT AND SPECIFYING THE ESTIMATED
USEFUL LIFE OF THE PROJECT; RATIFYING PRIOR ADVERTISEMENT
AND DIRECTING FURTHER ADVERTISEMENT; AUTHORIZING AND DIRECTING
THE PREPARATION, EXECUTION AND FILING OF A TRANSCRIPT OF PROCEEDINGS,
INCLUDING A DEBT STATEMENT AND BORROWING BASE CERTIFICATE,
WITH THE PENNSYLVANIA DEPARTMENT OF COMMUNITY AND ECONOMIC
DEVELOPMENT AND THE FILING OF THIS ORDINANCE AND THE APPROVAL
OF THE PENNSYLVANIA DEPARTMENT OF COMMUNITY AND ECONOMIC DEVELOPMENT
WITH THE PUBLIC EMPLOYEE RETIREMENT COMMISSION; AUTHORIZING
AND DIRECTING THE OFFICERS AND OFFICIALS OF THE CITY TO EXECUTE
AND DELIVER DOCUMENTS AND TO TAKE ACTION AS MAY BE NECESSARY
RELATING TO THE ISSUANCE OF THE BONDS; RATIFYING THE PRELIMINARY
OFFICIAL STATEMENT AND THE DISTRIBUTION THEREOF AND AUTHORIZING
THE APPROVAL AND DISTRIBUTION OF A FINAL OFFICIAL STATEMENT
AND THE USE THEREOF IN CONNECTION WITH THE SALE OF THE BONDS;
CREATING A CLEARING ACCOUNT; AUTHORIZING THE TRANSFER OF FUNDS
TO THE APPLICABLE PENSION FUNDS OF THE CITY; AUTHORIZING THE
PAYMENT OF EXPENSES; PROVIDING GUIDELINES FOR PERMITTED INVESTMENTS;
AUTHORIZING THE PURCHASE OF A POLICY OF MUNICIPAL BOND INSURANCE;
PROVIDING FOR THE AUTHORIZATION OF OFFICERS; ADOPTING THE
FORM OF BOND; COVENANTING TO PROVIDE CONTINUING DISCLOSURE;
PROVIDING FOR SEVERABILITY OF PROVISIONS AND REPEALING INCONSISTENT
ORDINANCES.

Mayor Callahan affirmed that the Administration is recommending
that City Council take positive action on the Pension Bond
this evening and support the financing option of a Tiered
Match for 30 Years With No Principal Payment in 2005. Mayor
Callahan explained it is felt that the proposal is taking
an already existing debt that is a liability which exists
currently of $34.5 million on which in essence the City is
currently paying 7-1/2% and refinancing that debt at 6%. Mayor
Callahan observed this is much the same as any taxpayer would
do on their mortgage to take the currently existing debt and
refinance it at a lower amount. Mayor Callahan pointed out
that the City would smooth out the pension debt payment over
a 30 year period, and it would also make it much easier to
budget. Mayor Callahan stressed that, equally important, the
City will be providing a measure of relief to the taxpayers
over the next two years and going out forward, allowing the
fund to rebuild. Mayor Callahan further pointed out this will
be done at a net savings of $1.5 million to the fund in the
process. Mayor Callahan expressed the belief that the only
way the proposal does not make sense is if City Council does
not believe that the fund will return 5.9%-6% over the next
30 years. Confirming that the Administration provided the
data for the investment returns for the pension funds over
the last 20 years, Mayor Callahan highlighted the fact that
over that 20 year period the average gain in all the funds
combined has been 10.4%. There were only 5 years in the 20
year period that the fund did not return the 6% threshold
at which money would be borrowed under the Pension Bond proposal.
While observing it could be said it is a hypothetical risk,
Mayor Callahan communicated there will be risk in the pension
fund regardless because any time dollars are invested the
money is at risk, but it is by putting that money at risk
that there is a return on the investment. Expressing that
the Administration feels the calculation of 7-1/2% is quite
conservative, Mayor Callahan illustrated there is the opportunity
to borrow the $35 million at 6%, to achieve some savings,
to refinance the unfunded pension debt, to smooth out the
payments over time, and to provide some necessary relief to
the taxpayers over the next few years. Mayor Callahan informed
the Members that this is a plan that is fiscally responsible
and has been endorsed by the City’s actuarial consultant,
the pension advisor, the financial advisors, and members of
the Pension Board. Mayor Callahan explained “the $72
million debt is there no matter what we do this evening, and
there will be risk we will incur regardless of the action
that Council takes this evening. We are lowering our cost
of debt with a predictable schedule versus inaction which
is a higher cost debt with an unpredictable payment schedule.
We are allowing the taxpayers in the City to breathe, and
allowing the ongoing economic development…[to] come
on line. All economic indicators show that the City is headed
in the right direction. All indicators are positive. We have
$14 million increase in our real estate assessments in just
the last year…The City has turned the corner from an
economic development standpoint. We have $330 million in economic
development in the pipeline as we speak.” Saying “it
is our opinion that we should give the City and the taxpayers
an opportunity to breathe, [and] give the City time to fuel
the recovery in a lot of the former Bethlehem Steel land which
essentially make up 20% of the taxable land mass of the City
to come on line,” Mayor Callahan expressed “we
would be doing everybody a service.” Mayor Callahan
stated the Administration does not feel there is any need
to put unnecessary pressure at this time on the taxpayers
and on the General Fund. Observing this is a problem that
was really nobody’s doing and was in essence because
of the losses in the stock market, Mayor Callahan explained
the City is in a position where it is having to contribute
$2.8 million to fund an unfunded liability into the pension
fund when last year the City put zero into the pension fund.
Focusing on the Tiered Match for 30 Years with No Principal
Payment in 2005, Mayor Callahan pointed out that is not front
loading the payments or back loading the debt. Mayor Callahan
thought that the Pension Bond has been structured in a very
reasonable and fiscally responsible way. Mayor Callahan further
stated the Administration is recommending this proposal not
only because it is the right thing to do in the smaller context
of the Pension Bond itself, but the Administration thinks
it makes sense given the financial state of the City in this
year’s budget and the finances of the City moving outward.

Mayor Callahan, while commenting that the Administration
is not wedded to any one proposal, explained the Administration
purposely wanted to lay out four proposals that it felt made
sense; i.e., Level Payments for 30 Years with No Principal
Payment in 2005, Tiered Match for 30 Years With No Principal
Payment in 2005, Level Payments for 30 Years with the Principal
Payment Beginning in 2005, and Tiered Match for 30 Years With
the Principal Payment Beginning in 2005.

Amendment to Bill No. 49 – 2004 - Financing Option
Of A Tiered Match For 30 Years With No Principal Payment In
2005

Mr. Mowrer and Mr. Donchez moved to consider the Administration’s
financing option of a Tiered Match for 30 Years With No Principal
Payment in 2005.

Dave Killick, of Conrad Siegel Actuaries in Harrisburg, stated
he is the plan actuary for the City’s Police, Fire,
and Officers’ and Employee’s Pension Plans. Mr.
Killick informed the Members that his primary role is to prepare
biannual actuarial valuations of the pension funds to determine
the funding status of the plans. Mr. Killick advised he then
communicates to the City how much money needs to be contributed
to the plan on an annual basis to keep it funded in accordance
with Act 205 which is a State law that spells out the funding
requirements for municipal pension plans. When preparing the
actual valuation, Mr. Killick explained that he makes numerous
assumptions regarding the value of the benefits that will
ultimately be paid to the participants of the plan. Mr. Killick
estimates how much an active member today is going to earn
over the next few years so that when the employee ultimately
retires he can calculate what the pension benefit will be.
Mr. Killick estimates the likelihood that the employee will
not only live to retirement but continue to work for the City
and earn benefits until that time. When the employee retires,
Mr. Killick makes estimates as to how long the person will
live and receive a pension payment from the plan. With all
of those assumptions, Mr. Killick explained that he discounts
all the benefits expected to be paid to all the members over
the years, such as 60 to 70 years, back to the valuation date
using an interest rate assumption of 7-1/2%. Mr. Killick then
determines what the liability is and compares that to the
assets of the plan at that time. If the assets are in excess
of the liability, then the plan is fully funded for prior
years. If the assets are less than the liabilities, then there
is an unfunded accrued liability that has to be made up by
the City over the period of years prescribed by Act 205. At
January 1, 2001 assets exceeded the accrued liabilities under
the three pension plans. The effect of that was in determining
the contribution requirements for the City, the City had to
contribute an amount equal to the cost of the benefits that
would be earned by the active members each year, but it was
able to take a credit of about $300,000 to take into account
the fact that the plan assets at January 1, 2001 exceeded
the accrued liabilities under the plan. An actuarial valuation
is done every two years. The purpose of doing the valuation
every two years is to adjust the contributions upward or downward
based upon how the experience of the plan during that two
year period differs from the assumptions. Affirming that in
January 1, 2001 there were excess assets, Mr. Killick pointed
out that in 2001 and 2002 the investments did not fare too
well. Mr. Killick, reiterating his assumption that the plan
assets will earn 7-1/2% each year, highlighted the fact that
not only did the plan not earn 7-1/2% in those two years but
actually lost money in those two years that was a function
of the stock market. Mr. Killick pointed out that, not only
did the City of Bethlehem pension plan lose money, almost
every pension plan across the country lost money during that
two year period. Because the assumption of 7-1/2% each year
was not met, Mr. Killick notified the Members the effect is
that the shortfall must be made up by additional contributions
by the City in future years. The period over which that shortfall
must be made up according to Act 205 is 15 years, or the average
future service of the active members if less. On January 1,
2003, instead of assets exceeding the accrued liability as
was the case on January 1, 2001, there was a shortfall of
about $35 million that is called the Unfunded Actuarial Accrued
Liability (UAAL). Beginning in 2005, the City has to make
contributions to the plan equal to the cost of the benefits
that will be earned in 2005 by the active members plus an
additional contribution to pay off the $35 million Unfunded
Actuarial Accrued Liability over a period of years. Instead
of a $300,000 credit, Mr. Killick informed the Members that
resulted in an approximate $4.5 million extra contribution.
Mr. Killick advised that earlier this year the State legislature
passed Act 81 that amended Act 205 to allow the City to pay
off or amortize the investment loss that occurred in 2001
and 2002 over 30 years instead of 15 years. The effect of
that was to decrease the amortization contribution from $4.5
million to $3.2 million. In other words, it is reducing the
2005 contribution requirement by about $1.3 million. The City
took advantage of that by having revised actuarial valuation
reports prepared and filed with the Public Employee Retirement
Commission. In 1995, the State legislature also passed a law
that allowed for Pension Bonds to be issued. The idea behind
the Pension Bond is that it is issued just like any other
bond that the City might issue. However, the proceeds, instead
of being used to purchase equipment, for example, were to
be deposited into the pension plans to pay off any Unfunded
Actuarial Accrued Liability that exists. Noting that the City
could have floated Pension Bonds since 1995, Mr. Killick said
but up to this point it really did not make financial sense
to do so. However, now that the Unfunded Actuarial Accrued
Liability is $35 million, it is something the City can consider.
Mr. Killick continued on to say the reason the City might
want to consider a Pension Bond is because, based upon the
current interest rate environment, the City may be able to
borrow money to deposit into the pension fund and pay off
the debt of the Unfunded Actuarial Accrued Liability at an
interest rate that is approximately 6% compared to the 7-1/2%
used in the calculation of the amortization of the Unfunded
Actuarial Accrued Liability in the pension plans that currently
exist.

Darryl Peck, of Concord Public Finance, financial advisors,
informed the Members that the company developed a financing
plan for the Pension Bond that is a way to refinance the existing
obligation. Mr. Peck, referring to the graph he had distributed
titled, Projected UAAL Payments, showing the Unfunded Actuarial
Accrued Liability, explained that, as Mr. Killick discussed,
the payments would be made over a 30 year period. Mr. Peck,
reemphasizing the 30 year period, highlighted the fact that
the returns were poor for everybody in 2001 and 2002. Mr.
Peck noted that the State itself had the foresight to allow
municipalities to amortize those losses over a 30 year period.
Mr. Peck explained that, when the graph would have been produced
earlier this year, the line would have been much higher at
about $4.5 million versus the present line showing beginning
payments just over $3 million. Mr. Peck demonstrated that
the graph shows the payment streams the City is facing over
30 years. All of the payments will equal $72 million. In the
financing plan that will be presented, all the payments on
the bonds, including expenses, have been factored in. All
of the savings are net of all costs of issuance. Mr. Peck
affirmed that Act 205 requires the City to make the stream
of payments. In today’s dollars, the present value of
that amount is $34.6 million. Mr. Peck said it is important
to note the Pension Bond issue of $35 million is a transference
of an obligation. The City currently has on its books an existing
liability of $34.6 million. Mr. Peck restated it should be
understood that the Pension Bond is simply a transference
of the existing $34.6 million obligation. Mr. Peck emphasized
it is simply not true to say that the City is going to issue
additional debt of $35 million. Mr. Peck affirmed that a Pension
Bond would be issued and the $35 million will be deposited
into the pension fund to totally fund the liability and put
the money to work for the City. With reference to a question
raised at the Finance Committee meeting of how the rating
agencies are going to look at the City of Bethlehem if it
issues a $35 million bond, Mr. Peck advised a rather clear
answer was received that there will be no effect on the City’s
rating. Mr. Peck observed that is a credit to the structure
that is being proposed. Mr. Peck communicated he hoped Council
would agree that the Pension Bond structure is conservative,
and no games are being played. The proposed repayment will
very closely match the existing payments that is the blue
line on the graph. Mr. Peck notified the Members that written
confirmation has been received from Standard & Poors rating
agency that in the City’s doing the Pension Bond it
will not have a negative impact on the City’s credit
rating. Mr. Peck, referring to the total $72 million amount
of future payments, explained that the Pension Bond really
just becomes a refinancing, and the Pension Bond debt service
schedule of a Tiered Match for 30 Years with No Principal
Payment in 2005 will provide aggregate cash flow savings of
about $1.5 million, with the present value savings in excess
of $3 million. Mr. Peck explained that the City’s current
pension obligation is accruing at an assumed actuarial rate
of 7.5%. The Pension Bond will have an interest rate estimated
to be approximately 6%, and could be less. As a result, Mr.
Peck advised therein lies the savings, and added it is just
like a bond refinancing that the City would do in its normal
course of business or a mortgage refinancing. Mr. Peck, focusing
on the 6% borrowing costs, reemphasized that the historical
returns of the pension funds serve to demonstrate that the
refinancing is not detrimental. In terms of historical investment
returns, Mr. Peck pointed out that over the past 10 years
the pension funds have averaged investment returns in excess
of 8%. Over the past 19 years, the pension funds have averaged
investment returns in excess of 10%. Acknowledging that, of
course, nobody can predict what the future returns will be,
Mr. Peck highlighted the fact that in looking back at the
historical data the pension funds have earned 8% over 10 years,
and over 19 years the pension funds have earned 10%. Mr. Peck
communicated that is the rationale for undertaking a Pension
Bond. Mr. Peck notified the Members that a page he distributed
this evening replaces page 1 in the presentation and contains
the same numbers but with additional columns. Mr. Peck stated
that, based on the recommendation of the Administration and
Concord Public Finance, he will focus on the Tiered Match
financing option. Mr. Peck explained that, in looking at the
Tiered Match for 30 Years With No Principal To Be Paid in
2005, by undertaking the Pension Bond transaction with that
financing option the City will save almost $1.4 million in
2005, the City will save $300,000 in 2006, and thereafter
there will be a small amount of savings and dis-savings. Turning
to the blue line on the graph, Mr. Peck noted that debt service
payments are approximately $3 million, and fall down after
2016 to about $2 million. Mr. Peck highlighted the fact that
under this debt service schedule there is no back-end or front-end
loading. Mr. Peck continued on to point out that over the
entire time period there will be aggregate cash flow savings
of almost $1.5 million which in present value terms is in
excess of $3 million. Mr. Peck advised that, under the financing
option of the Tiered Match for 30 Years With A Principal Payment
To Be Made In 2005, the City will save only $300,000-$400,000
over the next few years. Mr. Peck noted the question is where
should that money be in 2005. Mr. Peck expressed that ”the
thought process is let’s leave that money in the taxpayers
pocket, or leave that money in whatever other resources would
have to be reduced from the citizens.” Mr. Peck pointed
out that over time those accumulated savings will be experienced
for a longer period of time, and the taxpayers services would
not be impaired under the Tiered Match for 30 Years With No
Principal To Be Paid in 2005 proposal. Stressing that everybody
knows a dollar today is worth more than a dollar tomorrow,
Mr. Peck queried “when would you rather have the money.
I would rather have the money today, or over the next two
or three years.” Mr. Peck continued on to explain the
option is to have $1.7 million of savings over the next two
years, and the debt service payments would be very close to
the existing obligations. Turning to the graph that shows
a big spike in 2016, Mr. Peck commented he does not know that
the Administration or Council would want to consider such
a spike in 2016. Mr. Peck pointed out that the Administration’s
preferred proposal has the ability to erase that spike and
not impair any other year.

Mr. Reichard, affirming that he and Mr. Donchez, Chairman
of the Finance Committee, have had discussions over the last
two days, noted that he gave to City Council tonight some
points he would like to make about the Pension Bond Issue.
Mr. Reichard stated that one of the items Mr. Donchez had
inquired about as well as other Members of Council and some
individuals in City Hall is why the City cannot just borrow
for next year or the year after. Mr. Reichard informed the
Members that the pension law prohibits that. The pension law
states that the City can borrow for the unfunded pension liability
but it cannot borrow piecemeal, that is, the City cannot borrow
its Minimum Municipal Obligation (MMO) for the pension funds
for next year. If the City is going to borrow, it has to borrow
the full amount of the unfunded actuarial accrued pension
liability. Mr. Reichard confirmed that the Administration
asked those questions before they ever approached any Members
of City Council. Mr. Reichard informed the Members that he
spoke with Attorney Peter Carlucci, Bond Counsel with Eckert
Seamans, about a line of credit or a bank loan. However, Mr.
Reichard explained there is not a bank that is going to fix
a taxable rate for 20 years or 30 years. Instead, a bank may
give the City an interest rate for 5 or 7 years, but then
the bank will adjust the rate. In contrast, Mr. Reichard pointed
out that with a pension bond borrowing there will be a fixed
interest rate, and there will be a call feature after about
10 years so that the City can call the bonds and refinance
them. Mr. Reichard notified the Members this is what the City
of Easton did in 2003 and what the City of Allentown did since
both cities issued Pension Bonds. Mr. Reichard, acknowledging
it is the Administration’s proposal and it is City Council’s
prerogative to vote on it, highlighted the fact that “it’s
a liability on the City’s books. I don’t care
how you look at it. I think it’s been made clear it’s
$35 million. If we run the gamut for the next 30 years it’s
$72 million at the 7-1/2% interest. If we do the borrowing,
smooth out the budget payments, it’s $70 million, and
it’s at a rate that for today this borrowing does make
sense. You can sit there, and I can sit there, and you can
be nervous about it in the future, and say well are you going
to be able to make these kind of returns. It’s what
we look at every month on the Pension Board. We look at history,
but we only have history to look at. And, over the last 19-20
years…we’ve averaged 10.4% on those funds. As
I said to Members of the Finance Committee, and Members of
Council, we have a good pension board. We have good consultants.
We have our monies in a good mix of fixed and equities. We’re
interviewing [investment] managers now. With everything that
you’re bringing up for the future, with that in mind,
what happens if the market goes down, what kind of funds can
we invest to make sure we don’t have the type of losses
that some of the other funds would get. And, I think we’ve
done a good job. And, long before I’ve been on the Pension
Board, the Pension Board members have done a very good job
over the years of funding that.”

Turning to a comment made by Mr. Nyul about the benefits,
Mr. Reichard recalled that when he started with the City in
1974 the Bethlehem Steel was the cream of the crop. Their
employees were making the money and City employees were not.
Denoting that benefits increase, Mr. Reichard pointed out
that there are negotiations, and the City tries to keep benefits
within the range that can be afforded. However, there are
things that are out of the City’s control such as Act
111 and arbitration. Mr. Reichard communicated that there
will be benefits into the future. Mr. Reichard highlighted
the fact that the City has funded the pension plans over the
years according to the requirements of Act 205, and will continue
to fund them according to the requirements of Act 205. Mr.
Reichard, agreeing that tonight is a very important night
for the Administration and the City Budget, advised “these
are not scare tactics. This is just the facts. We’re
either going to come out of here tonight with an agreement,
hopefully, on the proposal that the Administration puts forth,
or tomorrow morning the Mayor and I are going to have to make
some painful decisions. Because, as we’ve talked about
it, it’s $2.8 million being added to the General Fund.
There’s a $1 million increase in medical [insurance].
And, there’s wage increases next year, even though the
27th pay is coming off that’s certainly helped, but
there are wage increases. And that represents a 24% increase,
and even greater if you look at the medical [insurance costs].
We think we have a good proposal here. I told Members of Council
early on, and I’ll reiterate it, I was never a fan of
the Pension Bond. I looked at this closely, and I feel strongly
that this is the way that we should approach it because, as
[Mr. Peck] said, it’s a debt. And, you’re going
to have it either way you look at it. It’s going to
have to be funded. And, it’s going to be your decision
tonight to decide how it’s going to be funded.”

President Schweder, with reference to the Mayor’s comments
last week that if the Pension Bond proposal did not go through
there are painful decisions to be made such as a tax increase
or layoffs, asked how much money is needed to cover the debt
and unfunded liability in the General Fund next year.

Mayor Callahan replied that if Council does not take action
on the Pension Bond proposal this evening, the City’s
mandated $2.8 million contribution to the pension fund next
year equates to an 18% tax increase in order to fund it.

President Schweder inquired whether the $2.8 million would
be the total liability for the unfunded liability and any
payments into the pension fund that the City would have to
make in 2005.

Mayor Callahan explained that the City’s portion for
its unfunded liability that it owes to the pension funds as
mandated by the State to be paid is $2.8 million. Based on
the current real estate assessment that would equate to 2.15
mills and would necessitate an 18% tax increase.

President Schweder, querying if $2.8 million covers every
dollar the City would need both in payments to be made and
for lost earnings, asked what is the dollar figure that the
City has to put into the pension fund next year for funding
everything including any liability going out and investment
losses.

Mayor Callahan replied for next year it is $2.8 million.

Mr. Reichard explained that the City’s pension liability
next year is $5.7 million total subtracted from which is the
State pension aid that the City will receive which would bring
down the total to about $3.2 million. Mr. Reichard, noting
some charges go to the Water and Sewer Funds, and Golf Course
Enterprise Fund, said that then leaves a net amount of $2.8
million. Mr. Reichard restated that the total unfunded pension
liability next year is $3.2 million plus additional normal
costs which comes to a total of $5.7 million.

President Schweder asked “how much more do we have
to pay to the General Fund to cover all the liability that
the City would have in the year 2005.”

Mayor Callahan responded $2.8 million.

President Schweder, observing perhaps it is just semantics,
stated his understanding is that the City has to put in the
unfunded liability now and the City cannot borrow piecemeal.
However, President Schweder pointed out the reality is if
the City does not borrow it can be done piecemeal.

Mayor Callahan said that is correct.

President Schweder, noting that at the very least the City
would have to borrow $20 million which is the amount of the
pension investment losses, stated the point is the City would
not have to do that if it did not borrow the funds. President
Schweder recounted what was said tonight is the other reason
to borrow money is because this liability is a liability the
City has so it does not cost any more money. President Schweder
said, if he understands what he has been told, if the City
pays the amount out of General Fund revenue and did not borrow
the money then the liability would be $35 million that the
City would have 30 years to pay back interest free.

Mayor Callahan stated the City would have to put $2.8 million
into the pension fund on which a 7-1/2% rate of return is
assumed over the next 30 years. Mayor Callahan advised the
Administration is proposing that rather than put the money
in piecemeal now the City is going to fully fund the pension
fund, have that money in the pension fund and pay 6% interest
on it, but the City is assuming it will get 7-1/2% interest
on that money which clearly has been done over time. Mayor
Callahan said the difference between the $72 million and the
$70 million is the difference between 7-1/2% and 6%, and represents
the savings. Mayor Callahan continued on to say that if the
City puts the money in now, pays 6% but gets 7-1/2% return,
it will fully fund the pension plans and will save $2.25 million.

Mr. Peck, referring to the handout dated November 3, 2004,
titled, Unfunded Pension Liability Restructuring – Financing
Options, turned to page 7. Mr. Peck, noting that he has already
talked about the payments that are required to be made of
$3 million over the next 12 years and approximately $2 million
afterwards, stated that on page 7 there is an amortization
schedule. Mr. Peck said “think of it as an annuity.
You can either…put $35 million in the account today,
or you can put something more than that in over time. The
column called Aggregate Payment is the $3.2 million. That’s
the data that builds the blue line on the graph. Those are
comprised of components, a principal component and an interest
component. Those are the two columns, the principal component
being the $34.6 million, the interest component being the
$37 million. Those two put together equal the $72 million
that must be paid over time. Everybody knows that you can
put $35 million away [and] invest it to get to $72 million,
or you can put it in piecemeal over time in the form of an
annuity. What the [pension] bond will do, then, is to equate
the debt service to the required payments under the actuarial
calculation. That is what is presented on page 3. And, the…$1.5
million in savings is the difference between 6% and the 7-1/2%.”

President Schweder pointed out that the Commonwealth of Pennsylvania
under the legislation says that this has to be paid back,
but it does not all have to be borrowed. President Schweder,
noting there is a way, agreed it may be a difficult way and
it may be painful cuts and other things. But, he stressed,
there is a way to do this without borrowing money.

Mayor Callahan, acknowledging that no one has ever denied
that, noted it has been made clear if the City does not do
this pension bond the City is going to owe $2.8 million next
year and that will equate to an 18% tax increase. Mayor Callahan
continued on to say that amount, coupled with the medical
costs, the debt service payment on the Hirko settlement, and
a 4% pay increase, is going to equate to greater than a 24%
tax increase. Mayor Callahan explained the Administration
is saying that can be avoided by taking action on the Pension
Bond this evening. Mayor Callahan, noting he does not think
anyone has denied that it can be done a different way, asserted
it will be a lot more painful and in the end more expensive.

President Schweder commented if it is done on a pay as you
go basis then the City does not incur the interest expense
that it would have incurred if it took out the Pension Bond.
He continued on to say the City would earn it with what it
put in but the City would not have the additional interest
cost since it would be making payments with General Fund revenue.

Mr. Peck, turning to page 3, focused on the column titled
UAAL Amortization, and noted that is the blue line on the
graph. Mr. Peck stated those are the payments that are required
to be made under the snapshot of the actuarial assumptions.
Mr. Peck explained that stream of payments will be replaced
with the column titled Annual Debt Service. The Difference
column on the right shows that $1.4 million of savings will
be achieved in 2005, $300,000 in 2006, and other amounts thereafter.
Through matching up the payments of the debt service with
the UAAL amortization the City will achieve $1.6 million of
savings or cash flow relief in 2005 and 2006, so over the
life of the loan the City would pay less in payments.

President Schweder inquired whether 30 to 50 jobs as a layoff
figure is what Mr. Reichard assumed that $2.8 million would
generate.

Mr. Reichard, commenting it would probably be more than that,
and noting the salary basis is about $30,000 per employee,
observed it would probably be about $900,000. Mr. Reichard
highlighted the fact that, obviously, the City cannot lay
off 300 people, for example. Stressing that he does not want
to enter into a debate regarding the issue, Mr. Reichard said
he thinks it is made clear that the City owes $72 million.
Mr. Reichard remarked that if one wants to fund it out of
the Budget then the City would have to put in $3.2 million
next year, plus the normal costs, plus administrative costs,
and for the next 5-6 years there will be about $6 million
of payments annually. That would have to come out of General
Fund revenues, or a combination of revenues and budget cuts.
Mr. Reichard observed what President Schweder is saying is
that if the City wrote a check today for $35 million “it’s
done. We don’t have that 7-1/2%. We have an interest
rate assumption to pay whether we invest the money or not.
Whether we invest it or not, that’s our payment schedule.
That $72 million UAAL amortization was done by Dave Killick
not Dennis Reichard, [and] was given to the State…That’s
what’s owed…and that will have to come out of
the General operating revenues…”.

President Schweder observed that this may be the solution,
or a partial solution, or perhaps there is some other way
of doing it. However, President Schweder stressed that “we’re
sitting here and being asked to do this in the dark…”.
President Schweder stated that every decision that is made
financially has a reaction on every other decision that is
made. President Schweder pointed out that Council has no idea
what is in the Proposed 2005 Budget and the Pension Bond proposal
is an integral part of that Budget. President Schweder stressed
that, in fairness to Council, the Members should see the proposal
as part and parcel of an entire financial package. President
Schweder remarked what the Administration is suggesting is
that City Council vote for a $72 million financing option
without knowing how it impacts anything else, and what are
the revenue streams and proposals for next year. President
Schweder recounted that, as Mrs. Belinski stated earlier and
noting that Mr. Leeson has the same concern, the City went
to the Bethlehem Authority this morning and got $2 million
or else would have defaulted on a payment on November 15.
President Schweder, agreeing that the Bethlehem Authority
was right in doing so, noted those funds are now evaporated
because there is a reserve that needs to be kept. President
Schweder communicated that Council does not understand, by
taking this of and by itself, the implications of the proposal
without seeing the rest of the budget. President Schweder,
stating it does not need to be done this evening, advised
that Council should look at the proposal and the alternatives,
and what are the ramifications of proceeding with a Pension
Bond or not proceeding with it. More importantly, President
Schweder noted is the question of whether it should be done
as part of a package of several things, such as changes in
the tax rate, elimination of positions, or a form of borrowing.
President Schweder continued on to point out that another
situation may be that Council could make the determination
that a year from now the issue could be looked at again. President
Schweder, communicating he has talked about it for years but
has not been supported by his colleagues, recalled that he
has talked for years about Council having its own fiscal and
budgetary analyst. President Schweder asserted what the Administration
is asking Council to do with no staff is to vote on something
that is a $72 million borrowing scheme when Council has no
idea how it fits into the Proposed 2005 Budget, and stated
that he thinks the process is wrong.

Mayor Callahan thought that to characterize it as a borrowing
scheme is inaccurate. Mayor Callahan said what President Schweder
is asking is to put the cart before the horse. Affirming he
is obligated to present a balanced budget, Mayor Callahan
stated that, in order for him to make a determination about
a potential tax increase or job cuts, he has to know whether
he is going to have a $2.8 million gap in his Proposed 2005
Budget. Mayor Callahan, while acknowledging he could present
the Pension Bond in the context of the 2005 Budget, remarked
what he thinks he would hear from Council then is that he
is forcing a pension bond down Council’s throats in
order to avoid a tax increase. Mayor Callahan, expressing
he is looking for some guidance, stressed that he cannot present
a budget until he knows what Council wants to do with the
$2.8 million liability. Mayor Callahan continued on to state
that that, if Council chooses not to take action, then he
will present a balanced budget as he is under obligation to
do, and find a way to plug the 18% gap through a tax increase
coupled with job cuts. Mayor Callahan pointed out the way
it looks now is that the City would be looking at a 24% tax
increase. Mayor Callahan stressed that the Administration
has been trying throughout this year to make the case for
how tight it is this year, and how hard it is going to be
next year. Mayor Callahan communicated if that is falling
on deaf ears with Council then there is not a lot he can do
about that. Mayor Callahan recounted that the Administration
has been talking about the increase in medical costs, the
increased cost in the pension fund, the debt service cost
for the Hirko case settlement, and the contractually obligated
wage increases for next year. Mayor Callahan stated “we
have tried to present you, while not the budget, the picture
as to where all this fits together. You want to know what
the impact will be on next year’s budget with the absence
of a pension bond, I told you. It’s $2.8 million, or
an 18% tax increase. I don’t know how much clearer I
can be. Now, if you choose not to do that, then I will find
a way to present a balance budget, and then Council…can
determine…whether you want to do it the way I presented
it, or in a different way. But, we really do need to know
tonight what…Council wants to do because I’ve
made a commitment to present a balanced budget to you on November
11th, and I plan to keep that commitment. But, I can’t
do it until I know whether you and the rest of this Council
think that a Pension Bond is the right idea. It’s just
that simple. I can’t present you a budget until I know
how I’m going to pay for everything…and I need
some direction from Council. We’re laying out the case.
It’s nobody’s fault how we got here. We’ve
got a $2.8 million liability. We’ve laid out four proposals
before Council. I have brought each individual Finance Committee
[member] in to meet with all the professionals one on one
to ask any questions they want. I made that offer to Mr. Leeson.
And, we have throughout this process answered every single
question that’s been posed to the Administration…We
just ask you to make a decision this evening.”

Mr. Reichard, turning to the Bethlehem Authority meeting
today, affirmed that the $10.3 million in the debt service
reserve fund is Water Fund revenues. While pointing out the
reserves in the account can keep building, Mr. Reichard remarked
there could be $15-$20 million in the account that is never
used. Mr. Reichard, confirming that the excess monies in the
reserve fund can be used to pay down debt service, advised
the debt service reserve fund is there to pay debt service
if the Water Fund does not have sufficient funds to pay it.
Adding that was the safeguard, Mr. Reichard advised the debt
service reserve fund was set up for that purpose. Pointing
out that the City’s water rates are governed by the
PUC, Mr. Reichard highlighted the fact that he cannot raise
rates without PUC approval.

President Schweder, while agreeing it was the right thing
to do, pointed out that the City owes $3 million in debt service
reserve fund payments for the last several years. Further
noting Mr. Leeson had asked about the money that the City
must pay back to the Sewer Assessment Fund, President Schweder
continued on to say that Mr. Leeson had asked Mr. Reichard
if there is a proposal to fund it and Mr. Reichard did not
have a proposal. President Schweder restated that, without
Council’s seeing what is in the Proposed 2005 Budget
including expenditures and new programs, Council would not
be able to make a determination whether some expenditures
should be cut or other revisions should be made to limit the
amount of money that might have to come out of the General
Fund for the Pension Bond. President Schweder stressed this
“is not the way we should be doing this. This is blind
man’s bluff.” President Schweder, remarking that
the process is flawed, stated that Council is being asked
to expend funds before Council sees what the total package
is, and he thinks that is wrong.

Mayor Callahan, with reference to President Schweder’s
comments, explained that unless the Administration has Council’s
agreement to change fees or issue a Pension Bond it makes
it very difficult for the Administration to develop a Budget.
Mayor Callahan expressed that, if he presented a Budget to
City Council that contains fee changes or a Bond Issue, he
would be chastised for including fees and changes without
Council’s consent. Mayor Callahan said, after he presents
the Budget, if Council determines they do not want to change
a fee, or wants to find another revenue source, then at that
point Council is free to change items in the Budget any way
they wish. Mayor Callahan restated that he cannot present
a balanced Budget until he knows what Council has or has not
consented to. Otherwise, Mayor Callahan stressed he would
be accused of forcing changes and fees “down Council’s
throat” in that context, and he is not trying to do
that. However, Mayor Callahan communicated he is trying to
paint the general picture of the financial state of the City,
and he can let Council know that the Administration is recommending
the Pension Bond not just because the Administration thinks
it is a good thing in relation to the Pension Bond and the
funding of the Pension Fund but in relation to this year’s
Budget and next year’s Budget, and Budgets going out
forward for the next 30 years. Mayor Callahan stated “it
is our recommendation that it makes sense in the overall micro
and macro context of the City’s financial situation,
coupled with all the economic development that is ongoing
in the City.”

Mr. Leeson, stating that he would preface his remarks by
noting his comments are only half related to the Pension Bond,
said he would characterize where the City stands right now
is probably one of the worst fiscal crisis that the City has
had in the history of the City, and added it is really unprecedented.
Mr. Leeson explained that “the origin of the City’s
crisis dates really back to a pattern of borrowing from Peter
to pay Paul, and draining the surplus funds from municipal
authorities, such as the Bethlehem Authority, the Housing
Authority, the Parking Authority.” Mr. Leeson, highlighting
the fact that this is not a crisis created by this Administration,
denoted that the Mayor and Council are now forced to deal
with it. Mr. Leeson communicated that an event happened at
8:30 this morning that elevated the crisis to an unprecedented
level. Mr. Leeson noted there are six factors he has been
able to identify that he thinks have contributed to bringing
the City to where it is. Mr. Leeson stated the first has to
do with the Bethlehem Authority. He continued on to say that,
for many years, the City has drained funds from the Bethlehem
Authority accounts. By the numbers acknowledged by the City’s
financial consultants, Concord Public Finance, the City owes
$3.4 million to the Bethlehem Authority. Mr. Leeson added
that Mr. Reichard has indicated the number has to be evaluated.
Mr. Leeson stated the City owes $800,000 for the failure to
meet the bond obligations concerning the 105% debt service
coverage ratio. The $3.4 million only covers the period from
2000 to 2004. Mr. Leeson said he understands the accountants
are currently working on the millions the City owes for the
period before the year 2000. Mr. Leeson recounted that, for
many years, the leadership of the City recognized that eventually
a day of reckoning would arrive with the constant transfer
of funds to drain other accounts to pay bills. Advising that
he has been monitoring the cash flow of the City, Mr. Leeson
remarked the City is in dire circumstances. Agreeing that
Mr. Reichard did the right thing this morning by asking the
Bethlehem Authority for $2 million from the debt service reserve
fund to make the bond issue payment, Mr. Leeson advised that
the City owes about $3.3-$3.4 million on November 15 and it
has to be wired by November 12 in order to be credited. Pointing
out that the City does not have that amount of money, Mr.
Leeson noted the City has about $1 million and with the $2
million requested this morning from the Bethlehem Authority
the City is still short several hundred thousand dollars to
make the bond issue debt service payment or the City would
be in default, and would be the second municipal government
in the history of the United States to default on a municipal
bond. Acknowledging he knows that is not going to happen,
Mr. Leeson communicated that if Council had to hold a special
meeting it would in order to address the situation. Mr. Leeson
stressed “if we default in the bonds it would destroy
the City’s credit rating, not to mention a host and
avalanche of other problems. That’s not going to happen.
We’re not going to let it happen.” Mr. Leeson
commented he is not sure what will be left after the City
takes the $1 million out of the Water Fund. Mr. Leeson affirmed
he was not at the special Bethlehem Authority meeting this
morning but Mrs. Belinski was. Pointing out Mrs. Belinski
confirmed one of the concerns on an ongoing basis into the
future is draining the surplus funds from the Bethlehem Authority,
and being locked into the current water charges because the
City does not have the authority to raise the rates without
PUC approval, Mr. Leeson asserted “there isn’t
going to be any more money next year in the Water Fund either.”
Mr. Leeson observed that the City is likely to turn up short
again and face possible risk of defaults in 2005. Mr. Leeson,
pointing out that Mrs. Belinski has raised the issue repeatedly,
stressed it apparently was confirmed at the Bethlehem Authority
meeting this morning that perhaps real estate will have to
be sold at the Watershed to raise money because the Water
Fund is not bringing the money in. Mr. Leeson remarked “not
only we have mortgaged the house to pay the bills, maybe we’re
going to be selling the house to pay the bills.” Mr.
Leeson, stating the second issue is the Bethlehem Housing
Authority, highlighted the fact that it is a problem not created
by this Administration. Mr. Leeson pointed out that the City
owes the Bethlehem Housing Authority $150,000 and that has
not been paid. Third, Mr. Leeson noted is the Sewer Fund.
Recounting that several years ago, $1 million was taken out
of the Sewer Fund, Mr. Leeson confirmed Ordinances 4029 and
4061 were passed that mandated the repayment of $1 million
during the year 2005. Mr. Leeson noted that, in recent exchange
of memorandums with Mr. Reichard, he understands that is not
being addressed. Mr. Leeson advised “we are going to
comply with the laws of the City, and we expect that the Mayor
who took an oath to uphold all the laws will do so.”
The fourth factor is the municipal bond payments in view of
the Water Fund not generating enough revenue. Stating the
fifth point is the PMRS situation, Mr. Leeson recalled that
in December 2002 the director of the Pennsylvania Municipal
Retirement System (PMRS), James Allen, was notified that the
City had given options for early retirement to about 50 City
employees. At that time, one of the issues was what that was
going to cost the City long term, although short term the
City was going to have some immediate savings in the Budget.
Mr. Allen wrote a letter in December 2002 that basically said
the cost is going to be $2 million. While the City did not
have to front that money at that time, in the year 2004 PMRS
was going to do an actuarial evaluation as to what would be
needed to fund the actuarial loss in the PMRS fund because
of the early retirements. Mr. Leeson commented “the
jury is out on that problem.” Sixth, Mr. Leeson said
in looking at the Auditor’s report for December 31,
2003 for the City, the debt levels were $24 million for current
liabilities, and approximately $200 million for long term
liabilities that included municipal bond debt. In the interim,
the City has taken out more municipal bond debt. Mr. Leeson,
observing that recent correspondence indicated that the figure
may be $28 million, and noting Mr. Reichard is nodding yes,
pointed out that puts the number up to $225 million long term
debt. Mr. Leeson highlighted the fact that, if the City takes
out the $72 million obligation, the debt figure will be $300
million in principal and interest payments which is an all
time high for the City, if not one of the highest for Third
Class Cities in Pennsylvania. Mr. Leeson stressed the problem
is that the City is not able to pay its bills any more. Mr.
Leeson continued on to say, if that were not bad enough, “if
you monitor the City’s cash flow and look at the numbers
that come in each month, we are down approximately $1.1 to
$1.4 million between reduced revenues and increased expenses.
Mr. Leeson acknowledged there are things over which the Administration
has little or no control. Mr. Leeson communicated that means,
with the projected cash balance at the end of the year, the
City will be in the red, and might not be able to meet payroll
either at the end of December or in early January until the
tax revenues for 2005 start to come in. While querying what
is the solution to this dire circumstance, Mr. Leeson observed
that, as was debated this evening, either expenses must be
cut or revenues increased which means increased taxes. Mr.
Leeson said in his own estimation an illusion is being created,
not by intent or not by plan, that somehow things are not
going to be that bad, the City can borrow its way out of this,
can mask the pain, postpone the pain, make people think this
is going to go quietly away in the night and disappear, and
it is not going to hurt anybody financially. Mr. Leeson asserted
“that’s just not so.” Mr. Leeson expressed
his belief that borrowing and incurring $72 million in debt
and putting the money into the equity markets “is basically
what is known as investing on margin in the stock market.
It’s a practice that stock brokers are required to tell
every single person who…borrows money to invest money
is among the highest risk activities that a person can engage
in, and it’s only suited for people who can afford to
lose the money.” Stated another way, Mr. Leeson stressed
“you don’t borrow money and then invest it in
the stock market unless you can afford to lose it. But that
is essentially what we are doing is borrowing money to put
it in the equity markets. That assumes we can afford to lose
it. We cannot afford to lose it, given the circumstances that
the City is in. We cannot afford to assume that risk. The
City of Philadelphia has lost tens of millions of dollars
to this. The City of Pittsburgh has lost tens of millions
of dollars to this type of a plan. The State of New Jersey,
I understand, although I don’t have the figures, has
lost millions of dollars to doing this. If that happens to
us…the debt doesn’t go away, now we’ve got
to borrow more money on top of it. Now, if that weren’t
bad enough, it gets worse. The proposed payment schedule offered
by the Administration basically builds in most of the savings
to the year 2005. Now, I ask you, what’s the magic about
the year 2005. Well, I’m not going to answer that question.
I’ll leave it to you. But, we’re going to have
artificially low payment in 2005, not paying any principal,
and then we’re going to whack everybody in the year
2006 with the payments basically skyrocketing because we took
most of the savings in 2005. And by deferring payment of principal
in the year 2005, we also add interest expense to the City
by a factor of approximately $300,000, a $300,000 added expense
that we don’t need amidst all this financial misery
in order to have an easy year in 2005. Now, what justification
is there for that to add $300,000 in more debt so we can sort
of create the illusion in 2005 that things aren’t that
bad.” Mr. Leeson stated he is going to vote no on the
Pension Bond plan because he thinks it is time that the City
starts paying its bills, starts telling the public that it
owes a lot of money, and it is time to say that the City is
not going to push its debt up to $300 million. Mr. Leeson
commented, unfortunately, that does mean tax increases. Mr.
Leeson, while acknowledging he does not like tax increases
any more than any other person does, stressed it is time for
a healthy dose of candor with the public that the City is
in trouble and needs to get out of it. Mr. Leeson noted “when
you’re in the hole, you don’t dig further. When
you’re in a hole you stop digging. But if we adopt this
plan, we’re going to dig ourselves further into the
hole. And, I say it’s time to climb out of it.”

Mayor Callahan commented “I will say, as Mayor of the
City of Bethlehem, that the City is not in a fiscal crisis.
Is the City, like any other Third Class Cities, [or] like
Philadelphia, like Pittsburgh, in tough fiscally difficult
times, yes. Will we default on our payments, no. Are we a
distressed community, no. Look around. I would ask you, Mr.
Leeson, instead of focusing on all that negativity, take a
look around the City in the $330 million of economic development
going on, $14 million of…increases in ratables…from
last year to this year, and the fact that the City is going
through a very difficult period in its history. We have 20%
of the land mass of this City in transition. We have weathered
the storm of a tremendous reassessment of the Bethlehem Steel
properties, and we are back to that level and growing beyond
that. I believe that the City turned the corner financially.
But does that mean we’re not going to continue to have
tough years going outwards, yes. Do I think we should reach
into the taxpayers pockets first to pay the bills, no. And,
in what I have put forward this evening, I don’t know
how many times we can say it, the debt exists whether we fund
it now, or fund it over a period of time. It doesn’t
change our debt picture. What you said is just completely
inaccurate. And…I believe that much of what you said
as an official of the City, as a Councilperson, is inaccurate
and irresponsible. I’m disappointed with much of what
you said this evening.” Referring to the points raised
by Mr. Leeson, Mayor Callahan highlighted the fact that he
is working with the Authority and will find a way to address
the issue. Mayor Callahan, focusing on Mr. Leeson’s
comments that these were not the creation of this Administration,
said “let’s roll up our sleeves and work together
to fix it. But, let’s not go to the taxpayers first
to do it. I know we’re going to have to have a tax increase
in the City. But, I put forth a plan that does not increase
the City’s debt, and it saves the City money over the
30 years.” Mayor Callahan stated that, all of the doomsday
scenarios that Mr. Leeson is painting about the City with
which he does not agree, he will argue all the more to take
a step that is being recommended this evening that is the
same thing that any private person would do if they had the
opportunity to take an existing debt that they pay 7-1/2%
on and refinance it at 6%. Mayor Callahan explained the reason
why the Administration is putting more savings in 2005 and
the year after that is because now is when the need exists.
Mayor Callahan communicated that he thinks the economic outlook
for the City is quite positive, the City has turned the corner
economically, and he thinks there will be less need in the
future for those savings. Mayor Callahan reiterated that the
City needs the savings now, not because he is running for
election next year. Mayor Callahan stressed that money is
there because that is where the need exists. Mayor Callahan
added that, since the actuarial valuation was done as of January
1, 2003, the City’s pension fund is up 15% so that the
City is already experiencing the benefit of a turnaround in
the stock market. Mayor Callahan, pointing out that the City
is not throwing the money into the stock market, advised it
is 60% fixed income and 40% in the stock market. Highlighting
the fact that the investment return assumption is 7-1/2%,
Mayor Callahan noted the Administration is refinancing a debt,
decreasing pressure on the City, and avoiding a tax increase.
Mayor Callahan commented that is his job as Mayor to come
up with creative solutions to fix the fiscal problems that
affect the City. Mayor Callahan thought all the other issues
that Mr. Leeson has brought up this evening are “a lot
of smoke and a lot of dust to cloud what we’re here
to hear about which is to discuss the merits of this pension
bond and whether it makes sense in the context of next year’s
budget.” Mayor Callahan, communicating that much of
what Mr. Leeson talked about are problems, said “I’m
going to roll up my sleeves and I’m going to try to
tackle [them]. I would hope that Council would do the same
along with me.” Mayor Callahan, while noting that his
Administration is paying the 5%, stated that the lack of paying
the 5% goes back to 1990. Mayor Callahan, asserting what Mr.
Leeson is advocating “is essentially to pay off a 30
year mortgage in the first year” insisted “I’m
not going to do that.” Mayor Callahan, questioning why
Mr. Leeson wants to pay it off next year, wondered if it is
because he is up for election and Mr. Leeson wants to force
the largest tax increase in the City’s history. Mayor
Callahan queried why put enormous pressure on the taxpayers
next year when the Administration has put forth a plan that
is responsible and that makes sense. Continuing on to affirm
that there will be a tax increase next year, Mayor Callahan
said he would like to keep the tax increase down as low as
possible in the most fiscally responsible way possible, give
the City some time to breathe, give some opportunity for the
taxpayers to get some relief, and move forward as a City.
In addition, Mayor Callahan communicated “let’s
go about tackling some of these other problems that have gone
on for 14 years, for 5 years, for 10 years, together.”

Mr. Leeson explained the reason why he wants this next year
is that “it’s time to start to pay as you go.
It’s time to stop borrowing from Peter to pay Paul.
The level of financial risk associated with borrowing this
money and committing the City to repayment of it is an inappropriate
risk level for the City to take. And, finally, if the market
is doing as well as you feel, we’re going to owe less
money in the future, and the pension fund will be overfunded.
So, if the market is going to do well, we’re not going
to owe $35 million.”

Mrs. Belinski stated she resents the Mayor’s accusation
of using smoke and mirrors, and of Council’s being irresponsible.
Mrs. Belinski asserted that the one who used smoke and mirrors
on Council was the Mayor when he called each individual Member
of Council concerning the resolution of the Hirko trial. Mrs.
Belinski insisted there would not be $850,000 in the budget
next year if it was not that Council was misled. Mrs. Belinski,
recounting that the Landfill was the first situation she can
recall where the City borrowed from Peter to pay Paul, stressed
that the City took as much as $3 million a year for the tipping
fees for the Landfill and is why the City no longer has a
landfill. Mrs. Belinski continued on to say the City let the
Landfill be neglected year after year, and violated rules
of the former DER now DEP because the City took the money
to subsidize the General Fund. Mrs. Belinski, asserting that
the Landfill was a cash cow, stressed the City ruined it by
taking all the money. Mrs. Belinski inquired whether the $14
million increase in real estate assessments includes the Moravian
Village. Mr. Reichard explained that is starting to come on
the books, some of the Moravian Village development came on
the books last year and some is coming this year, more will
be coming on next year, and the final will be in 2006. Mrs.
Belinski, referring to the Conectiv plant on Applebutter Road,
highlighted the fact that the plant is located in the Enterprise
Zone and consequently only pays a portion of their tax. Mrs.
Belinski advised Ms. Szabo told her that Conectiv has not
even paid their $14,000 taxes yet. Ms. Szabo stated that was
as of October 26. Mayor Callahan affirmed to Mrs. Belinski
that 120 acres at Bethlehem Works is in the Enterprise Zone.
Mrs. Belinski said she agrees 100% with Mr. Leeson’s
comments.

Mr. Donchez confirmed that many of his questions were answered
over the last several meetings, and he asked questions at
the Finance Committee meetings. Mr. Donchez recounted that
most Members of Council over the last five or six years were
on public record saying they felt uncomfortable taking certain
amounts of money from the Enterprise Funds to balance the
budget. Mr. Donchez noted that the General Fund budget was
being balanced with about $1.5 million from the City’s
Enterprise Funds. Mr. Donchez, acknowledging the City is in
a difficult situation now because most of those funds are
very low, said there are some very difficult decisions to
make. Mr. Donchez pointed out that the Mayor has said there
will be a tax increase to deal with some of these issues.
Turning to the pension issue, Mr. Donchez highlighted the
fact that the City is required by State law to come up with
some type of plan by December 31 of this year. Mr. Reichard
advised that the City is required by State law to make an
annual Minimum Municipal Obligation (MMO) payment according
to the actuarial study. Mr. Donchez observed the options are
a Pension Bond or a year by year tax increase to make the
annual MMO payments. Mr. Reichard indicated in the affirmative.
Mr. Donchez continued on to state other options would be a
combination of a tax increase or layoffs. Mr. Donchez noted
the City cannot step back for a year or two and take out a
bank loan, or a line of credit. Mr. Donchez pointed out that
the City must either fund the whole thing or it is a year
by year tax increase.

Mr. Killick advised the law that authorized pension bonds
stated that the City could issue bonds to pay off an unfunded
accrued liability but the City cannot issue bonds to meets
its annual obligation payments. Mr. Killick, stating that
if the City wanted to issue pension bonds it can only do so
one time to pay off an unfunded accrued liability, said the
result of that would be that the City’s annual obligations
in future years would be less because the unfunded accrued
liability is now gone.

Mr. Donchez was informed by Mr. Killick that under pension
bond law the City cannot take out a line of credit to help
pay.

Mr. Donchez asked if Attorney Carlucci, Bond Counsel, has
signed off on the Pension Bond. Mr. Reichard affirmed that
Attorney Carlucci prepared the Pension Bond Ordinance. Mr.
Donchez, noting that Attorney Carlucci is not present this
evening, said he would like to get the firm on the record
stating they have signed off on the Pension Bond. Scott Mehok,
of Eckert Seamans, replied correct. Attorney Mehok advised
that the City could not borrow or take out a bank loan under
the Local Government Unit Debt Act. Attorney Mehok added that
any time the City borrows money it has to obtain DCED approval
and the City would be in violation of that.

Mr. Donchez noted the amount of State pension aid that the
City would receive annually would not be affected by the Pension
Bond, and whether it is in a deficit or surplus situation
the City would still get the annual State contribution. Mr.
Reichard said yes.

Mr. Donchez asked when the bonds will be callable if the
rates permit refinancing. Mr. Peck responded that the bonds
would be callable in 10 years or less.

Mr. Donchez, advising that he spoke with Andrea Caladie,
of Parente Randolph, the City’s Auditors, said he asked
her to be here tonight but Ms. Caladie was unable to attend.
Mr. Donchez noted he was informed by Ms. Caladie in his telephone
conversation with her that other cities have done it, and
acknowledged there have been some horror stories with Philadelphia,
Pittsburgh, and New Jersey as was noted at the Finance Committee
meeting. Mr. Donchez, stating that the loss in New Jersey
was $2 billion, added that San Diego was in the newspaper
last week. Mr. Donchez pointed out that in some cities it
has worked. Mr. Donchez informed the assembly that Ms. Caladie
said it may be the right thing to do, but it is a decision
that Council has to make with all the information provided.
Mr. Donchez stated that Ms. Caladie agreed it is a very difficult
decision to make. Noting that the City would be taking out
a bond and investing it in the market, Mr. Donchez observed
the City would be placing its faith in the market. Mr. Donchez
communicated that, as he said at the Finance Committee meeting,
the City has always had a return in the market going back
20 or 30 years and hopefully that will be the case in the
future. Mr. Donchez stated his concern is that the stock market
today may be a little more volatile because of external factors
beyond the City’s control, such as the global economy,
terrorism, etc. Mr. Donchez, acknowledging that the City is
faced with a difficult decision, said he does not want to
see an 18% or 20% tax increase, and does not want to see 50
or 60 employees or whatever the final number is laid off.
Stressing that the City does have a responsibility, Mr. Donchez
highlighted the fact that there are only a few options. Mr.
Donchez said it is really down to two options, either a Pension
Bond or a tax increase, or layoffs, or a combination. Mr.
Donchez agreed that many of the financial problems in dealing
with cash flow, making bond payments, and going to the Bethlehem
Authority which, he said, they did the right thing and Mr.
Reichard did the right thing today, have been because over
the years there should have been small tax increases but it
was not done. Commenting that probably goes back several years
with different Mayors, Mr. Donchez expressed the thought that
many times the public would accept a small tax increase as
long as it can be justified rather than one large tax increase
after the end of five years. Mr. Donchez pointed out that
is not the fault of this Administration. Mr. Donchez highlighted
the fact that Council is faced with an issue now, outside
of the Budget or the Hirko situation, on which a decision
must be made. Mr. Donchez commented that, if the Pension Bond
were to be approved, Members of Council should become an ex-officio
member of the Pension Board. Mr. Donchez affirmed that, as
Chairman of the Finance Committee, he requested that City
Council receive copies of the Pension Board minutes. Mr. Donchez
thought it would be fair that the President of Council and
future Presidents, and Chairman of the Finance Committee and
future Chairs be ex-officio members of the Pension Board so
that Council has more oversight. Looking back at a few past
issues, Mr. Donchez recounted that City Council and the Administration
have worked together dealing with insurances for the first
time that was very constructive and which he said was a plus.
He continued on to state that passing an Ordinance to require
a minimum of $10 million liability insurance for the City
was a plus. Recognizing that a budget deadline is being faced
that cannot be changed, Mr. Donchez recalled that the pension
funding issue was first discussed in June and as soon as the
Administration received the information they did come to City
Council and a Finance Committee meeting was scheduled as soon
as possible. Mr. Donchez continued on to note there were two
additional Finance Committee meetings to discuss the pension
funding issue. Mr. Donchez said “we really have to be
very cautious if this is approved. We have to be very conservative.
This is the taxpayers money, but we are faced with some difficult
choices.” Mr. Donchez advised he is willing to support
the Pension Bond on the 30 Year Tiered approach. However,
Mr. Donchez thought that very strict oversight is needed and
reiterated that the City has to be extremely conservative
in its investments because, he said, “we have to do
this right. We cannot make a mistake here. We cannot end up
like a Philadelphia or Pittsburgh…But we need to do
this right because we owe it to the 72,000 residents of this
City.” Mr. Donchez commented that the workforce of the
City was much higher at the time of Black Friday when there
were many layoffs at Bethlehem Steel during the Marcincin
Administration than it is today. Continuing on to say “there’s
just so much you could cut before you really affect City services,”
Mr. Donchez thought that, in many areas, the City is at that
point. He expressed the belief that if 50 or 60 employees
were laid off it could affect City services in many different
areas. Mr. Donchez said that looking at this whole picture
he is going to support the Pension Bond, but he is going to
try to keep a close eye on it as much as possible. Mr. Donchez
expressed the hope that, if it does pass, thought should be
given for Council to have some oversight as ex-officio members
of the Pension Board so that Council is part of the process.

Mr. Mowrer stated that he agrees basically with what Mr.
Donchez said, and he is willing to vote in favor of the Pension
Bond. Mr. Mowrer asked what would it do to the Administration
to present two Proposed 2005 Budgets to City Council, with
one budget including the Pension Bond as if Council passed
it, and one budget that does not include the Pension Bond
but includes a tax increase.

Mayor Callahan, observing that while it would double the
work, said he does not mind working hard so whatever it takes
to do that he would guess the Administration could do so.
Mayor Callahan communicated he has already begun to think
about what the Administration would do in case the Pension
Bond does not pass.

Mr. Mowrer, noting if the Mayor did that and presented two
budgets to Council then Council would be the ones who would
make the decision, added he does not think that has ever been
done.

Mayor Callahan, also expressing he does not know that presenting
two budgets has ever been done, observed that could be done
for a lot of different issues, such as police cars, medical
costs, and so on. Mayor Callahan reaffirmed that his role
is to present a balanced budget to Council and then have Council
determine whether they think it makes sense or not.

Mr. Mowrer asked if the Mayor can present one Budget that
includes the Pension Bond with the 30 Year Tiered Match with
No Principal in 2005, and one Budget with not doing it that
way.

Mayor Callahan said he could do that. Mayor Callahan continued
on to point out there is also an issue of timing needed to
move forward with the Pension Bond. Mayor Callahan recounted
that the timing to move forward with the Pension Bond was
discussed at the Finance Committee meeting in order to get
the money, and also the change in interest rates between Thanksgiving
and Christmas.

Mr. Peck advised that, in order to get the effects of the
Pension Bond, the transaction needs to be closed before the
end of the year because the City needs to have $35 million
in the fund so that it takes effect on the January 1, 2005
valuation. Mr. Peck continued on to say that, backing up from
there, there is the normal 20 to 30 days to get the bond issue
approved at the State level. Mr. Peck, informing the Members
that the ultimate goal was to sell the bonds before the week
of Thanksgiving, observed there is usually a little move adversely
to the borrower in selling bonds after the Thanksgiving holiday.
Mr. Peck noted the original timeline, if Council tells the
Administration to move forward, was to bring back the Pension
Bond proposal for the November 16, 2004 City Council Meeting
on Final Reading.

President Schweder queried if the requirement is that a plan
is in place to present to the Commonwealth of Pennsylvania
by the end of the year.

Mr. Peck replied no.

President Schweder asked when is the City required to provide
both funding and approval of the plan.

Mr. Peck responded that, in order for the Pension Bond to
have its effect for the future amortization payments that
are required, the money needs to be deposited into the account
by December 31, 2004. Mr. Peck continued on to advise that
for the plan, in order to close, the Pension Bond needs to
be presented to DCED in Harrisburg 20 to 30 days before that
date.

Mr. Mowrer, commenting that City Council could vote on the
Pension Bond tonight for First Reading so that it would be
ready to go if Council would choose to follow that plan, said
“and if we don’t then we just don’t do it
the Second Reading” and asked if he is correct.

President Schweder said yes.

Ms. Szabo stated “I am not running for election next
year. You’re stuck with me until 2007.” Ms. Szabo
said “when [Mrs. Belinski] and I attended the [Bethlehem]
Authority meeting this morning they were, just as we are,
a little dismayed about some things. But, when the Authority
Board was told that an action that will be…taken care
of will remedy certain problems, at that point one Board member
turned and looked at both [Mrs. Belinski] and I…, and
he was obviously angry, and said ‘why hasn’t this
been done before a long time ago. The City has to take action.’
And, he was right. And, you cannot put all this blame on Mrs.
Reese, either. Mr. Nyul was right tonight. We have all expressed
dismay in recent years about the fact that we’re not
getting wise priorities. And, I know…you’re only
Mayor for a few months and you can defend yourself, but nevertheless
you were on Council, too…We have, at times, set wrong
priorities, ignored some things while we paid too much attention
to other things and argue with each other; me, too. If we
are asked to do the first vote tonight which is November 3rd,
the Budget is supposed to be released on [November 11]. That
gives us only four days to go over the whole Budget before
the second vote is due. I ask that whoever makes the motion
to put this item up for vote stipulates that we will not vote
on this issue [at] the meeting two weeks from now.”

President Schweder advised, if the Bill does pass tonight,
Ms. Szabo or any other Member of Council would have the right
at the next City Council Meeting to ask that it be considered
or be tabled at that point.

Mr. Arcelay commented that, as he has been going around in
the City over the past two years that he has been a Member
of Council, he thinks most citizens are fully aware that the
City “has been maxing out with services.” Mr.
Arcelay continued on to say “all the complaints that
I respond to, and try to get assistance with, it all boils
down to basically lack of services…”. Mr. Arcelay
commented “I think…we’ve gotten ourselves
into this position, and we have a tough decision to make.
I’m in favor of voting for this, however hard, and what
comes with that.” Expressing that, moving forward, it
would be more responsible to have smaller tax increases, Mr.
Arcelay thought everyone is fully aware that needs to happen
and the City cannot continue going the way it has been going.

Mr. Donchez and Mr. Arcelay sponsored Resolution 14,518
approving the Five Year Consolidated Plan for Fiscal Years
2005 to 2009 and the Fiscal Year 2005 Annual Action Plan for
the Community Development Block Grant (CDBG) and HOME Programs.
The City of Bethlehem’s 2005 Entitlement is estimated
as follows: Community Development Block Grant -$2,000,000,
HOME Investment Partnership Program - $600,000; and, the City
anticipates having $60,175 of program income and is reprogramming
$174,933 of prior years funds.

President Schweder asked, with respect to Community Development
Block Grant (CDBG) funds and his thoughts regarding looking
at the budget, is it required to pass the Resolution this
evening under the timetable of the Federal Government.

Dana Grubb, Deputy Director of Community Development, replied
yes.

Amending Resolution 11 A

President Schweder suggested to City Council that consideration
be given to directing Mr. Grubb to take the maximum allowed
out of the line items and put the money into the category
of Unprogrammed Funds, as has been done in the past. Mr. Grubb
confirmed to President Schweder that would be 10% of the total
amount. President Schweder, focusing on the Proposed 2005
Budget, observed that setting the amount aside does not commit
Council to be in favor of or against anything but would allow
Council to have the money set aside to determine how Council
thinks it should fit in with the rest of the Budget considerations.
Stating that would probably mean some monies would be taken
from the Elm Street Program and South Side Playgrounds, President
Schweder pointed out that would not preclude money from being
spent on those items. Rather, it would allow Council the latitude
to come back and address the matter in December.

B. Authorizing Execution of Documents – Designation
of Agent for PEMA
Mr. Donchez and Mrs. Belinski sponsored Resolution 14,519
that authorized Michael Sankovsky, Emergency Management Coordinator/Assistant
Fire Chief, to execute for and in behalf of the City of Bethlehem
all required forms and documents for the purpose of obtaining
financial assistance under the Robert T. Stafford Disaster
Relief and Emergency Assistance Act (Public Law 93-288 as
amended by Public Law 100-707).

Mr. Donchez and Mr. Arcelay sponsored Resolution 14,520
that adopted and submitted to the Department of Environmental
Protection for its approval as a revision to the “Official
Sewage Facilities Plan” of the City the Sewage Facilities
Planning Module for the development of a parcel of land identified
as Bethlehem Commerce Center, and described in the attached
Sewage Facilities Planning Module, and proposed that such
subdivision be served by sewer extension.

Mr. Donchez and Mr. Arcelay sponsored Resolution 14,522
that authorized the disposition of the public records of the
Purchasing Department, as listed in Exhibit A, according to
schedules and procedures for the disposition of records as
set forth in the Municipal Records Manual approved on July
16, 1993 and Resolution 13,076

Mr. Donchez and Mr. Arcelay sponsored Resolution 14,523
that granted a Certificate of Appropriateness to add name
to existing wall signs and put company lettering on storefront
glass at 306 Brodhead Avenue.

G. Certificate of Appropriateness – 310-332 East Third
Street

Mr. Donchez and Mr. Arcelay sponsored Resolution 14,524
that granted a Certificate of Appropriateness to finish the
exterior and install signage and exterior lighting at 310-332
East Third Street.

H. Certificate of Appropriateness – 113 East Third
Street

Mr. Donchez and Mr. Arcelay sponsored Resolution 14,525
that granted a Certificate of Appropriateness to install a
flat wall sign at 113 East Third Street.

Mr. Leeson, affirming that many of the questions raised
this evening by Mrs. Belinski, Mr. Mowrer, and Ms. Szabo were
contained in the extensive memorandum that he sent to the
Administration, stated it was not responded to although he
asked that the information be furnished tonight. Mr. Leeson
asked that the message be sent to the Mayor that he expects
the answers in writing before the second vote on the Pension
Bond.

13. COURTESY OF THE FLOOR

Pension Bond

Chuck Nyul, 1966 Pinehurst Road, with reference to comments
made earlier by Dave Killick, of Conrad Siegel, about a 7-1/2%
return and if that number was not achieved then the City would
owe money, asked in two years after the Pension Bond is passed
is Mr. Killick going to envision this again, and whether the
City will owe more money in succeeding years. Mr. Nyul, asserting
that the $35 million Pension Bond is just paying off that
portion, pointed out that every two years Mr. Killick can
come back and say the City owes more money because the stock
market fell and the return threshold was not met. Mr. Nyul
said Council has to remember that running figures up and down
is not going to do it, and that Council should ask questions.

South Side - Parking

Mr. Nyul noted that Broughal School is taking over the parking
lot on the west side of the street that belonged to Lehigh
University. Mr. Nyul, wondering who has the say over whether
the School can take over a parking lot, emphasized that the
City is looking for parking on the South Side and questioned
why Broughal School is taking over more parking space on the
South Side.

Mrs. Belinski thought there are plans to build a new Broughal
school there. Mrs. Belinski noted that school officials were
looking for a site and have not found an alternate site.

Ms. Szabo advised that Mr. Nyul should go to the Bethlehem
Area School District with his concerns.

Tax Breaks

Mr. Nyul, with reference to tax breaks and jobs for Cabela’s,
stressed that “Montgomery County is taking a heck of
a beating because of all the galores.”

Bethlehem Works

Mr. Nyul, focusing on a newspaper article about the individuals
who purchased property at Bethlehem Works and a picture of
a development behind which was the Manhattan Bridge in Brooklyn,
questioned whether the City would like to have a project like
that in South Bethlehem and have 8 million people available
to come there each day. Mr. Nyul remarked “these guys
know how to make money, but they’re going to spoil your
Bethlehem Works…”.

Pension Bond and Taxes

Mr. Nyul, pointing out there is no magical crystal ball
and City officials are going to have to work at it, said “increase
my taxes, why not. In fact, after you make the bond issue,
increase my taxes anyway. Begin. Little bit. And a little
bit next year, and a little bit the next year, and a little
bit the next year. I can take that. But, I cannot take a $35
million bond.”

Taxes; 12 Minute Time Limit at Committee of the Whole Meeting
on Five Points Traffic Plan

Eddie Rodriquez, 436 Pawnee Street, said he has been speaking
with people in the community. Focusing on tax increases, Mr.
Rodriquez thought that honesty is the best policy, and that
people would accept a tax increase as long as City officials
are honest with them. He later expressed that people would
understand if there is a tax hike because there are bills
to be paid in the City. Mr. Rodriquez felt that the Hirko
settlement “messed up the whole entire City”.

Referring to a South Side Task Force meeting, Mr. Rodriquez
recalled that the Mayor wanted the community and the Police
to work together, and to hear the community’s efforts
and comments. Mr. Rodriquez asserted “you cannot do
this on a 12 minute time limit. You can’t. It’s
impossible.” Mr. Rodriquez said “I am not going
to go away…because people are requesting that I speak
for them.” Mr. Rodriquez communicated that he deserves
a lot more respect for what he does in the community on a
volunteer basis. Mr. Rodriquez asked if Council Members are
willing to allow whoever comes to tomorrow’s Committee
of the Whole meeting on the Five Points Traffic Study presentation
time to speak, and further asked that there not be a 12 minute
time limit. Mr. Rodriquez was informed by President Schweder
that the rule states 12 minutes and he intends to enforce
it. Mr. Rodriquez questioned how City Council is going to
learn what meeting attendees think, their opinions, and ideas.
Mr. Rodriquez asked that an extension beyond 12 minutes be
allowed on a one time basis, and remarked that City officials
tonight were allowed to speak for 45 minutes. Mr. Rodriquez
queried why the same favoritism is not allowed on the citizens’
side on a one time basis. Mr. Rodriquez distributed a letter
to the Members of Council from Jim Gaal pertaining to tomorrow
evening’s business, and added that Julio Guridy, a Council
Member from Allentown, is going to call President Schweder.

Mr. Rodriquez commented that if those in office want to gain
re-election then they should work together.

Meeting Dialogue

Stephen Antalics, 737 Ridge Street, said, based upon earlier
comments and observations relative to fiscal situations, if
he invested on the ratio of substantive comments versus total
dialogue he would be in debt. Mr. Antalics, with reference
to frivolous dialogue and the Resolution that specifies a
12 minute time limit, thought that the 12 minute time limit
might apply to everyone.

Pension Bond

Mayor Callahan, advising that the Administration has just
been in consultation with bond counsel and the City’s
financial advisor, and referring to the timeframe working
backwards from when the Pension Bond needs to be issued, said
he does not feel comfortable from the comments that were made
this evening to move forward in selling the Pension Bonds.
Mayor Callahan communicated it was not Council’s intention
this evening to authorize the Administration to move forward
with the Pension Bond. Mayor Callahan, stating that was not
clear to the financial advisor and bond counsel, said he needed
to make sure they knew that because they were getting ready
to issue bonds based on the without prejudice First Reading
vote. Mayor Callahan noted that, typically, once there is
a First Reading, the bonds are issued, and then there is Final
Reading. Mayor Callahan said that is clearly not the process
that Council is wanting to follow right now. Expressing his
appreciation for Mr. Donchez’s comments earlier, Mayor
Callahan commented that he thinks everyone has worked as hard
as they can and as quickly as they can given the window of
opportunity being as short as it is. Mayor Callahan, observing
that these things take time, stated he has tried to be patient
as Council has worked its way through the process. Mayor Callahan,
recounting he was hoping that action could be taken at the
first Finance Committee meeting on the matter and certainly
the second meeting, noted he did make it clear at the second
Finance Committee meeting that the Administration was going
to need some definitive direction on the part of Council tonight.
Mayor Callahan stated “we didn’t get that.”
Mayor Callahan said “I have to let you know that we
do need, bond counsel, our FA, the Administration, we need
a definitive vote on November 16th in order to meet our timeline,
or to get this process moving in order to get it done by the
end of the year. Again, we still are going to run that risk
of potential interest rate creep between Thanksgiving and
[Christmas]…”. Reiterating that he has tried to
be as patient as he can, and expressing his understanding
that it is a complex issue and there is a lot riding on it,
Mayor Callahan advised that he will present two Budgets. Mayor
Callahan explained that, in essence, the proposed 2005 Budget
is either going to have an additional $1.4 million of revenue
in the General Fund or not. But, because of the short window,
Mayor Callahan said, in consultation with bond counsel and
the financial advisor, “it is their opinion that we
are going to need a definitive vote on [November] 16th up
or down from this Council in order to move forward.”
Stressing that, as Council knows, the City does not want to
sell bonds and then renege on them, Mayor Callahan highlighted
the fact that was done once already this year on a $2.23-$2.5
million bond issue, and remarked “you can do that for
a $2.3 million bond issue. It’s not good practice because
people then don’t trust you when you go to market for
bond. It can increase other costs. But, certainly, you can’t
do it for a $34.5 million bond issue. That’s not an
option to go to market and then not sell the bonds, or sell
the bonds and then renege on it. What we will do…basically,
we’ll set some parameters…we’ve done that
before. You’re authorizing sale at such and such a threshold
of savings.”

Mr. Peck, expressing “we can’t go out and sell
bonds. I’m not sure exactly what the vote meant tonight.
If you can direct us otherwise, obviously we’re willing
to listen. But, what we propose to do is, the Mayor, as he
said, will do his Budget as was the wish. On the 16th, we
will bring a parameters resolution…That will basically
be the vote to proceed or not to proceed, hopefully proceed,
with the financing, and then we would sell the bonds in the
next two or three days provided that we keep the terms and
conditions of the bonds in your parameters. That would authorize
the Mayor, then, to accept the purchase contract. We would
[then] be locked in.”

Attorney Mehok explained what is being proposed is essentially
a not to exceed resolution. Attorney Mehok informed the Members
that the challenge under the Debt Act is, not only must a
maximum principal amount not to exceed be specified, but it
also has to be specified within each maturity a maximum principal
amount and a maximum interest rate. Consequently, Attorney
Mehok advised when City Council gets the resolution it will
be higher than $35 million because, once the issue goes out
into the market, if it is found that interest rates have moved
in such a fashion, then the parameters would not be able to
be met, and then the matter would have to come back and the
whole process would have to start from the beginning again.
Attorney Mehok confirmed that a parameters resolution, in
essence, would authorize a not to exceed overall level, on
a maturity by maturity level, and also on an interest rate
level.

President Schweder stated that, as the presiding officer
of Council, tonight this Council voted and approved on First
Reading what the Administration has requested. President Schweder
continued on to say “that is reason for you to proceed.”
President Schweder queried, under the letter of the law, what
is different about this vote tonight than any other vote that
has ever been cast for a bond.

Mayor Callahan commented he would say that, if the financial
advisor and bond counsel were going by the letter of the law,
the City can go out and sell bonds now because in the past
that is what has been done. Expressing his read from Council
was if that was done Council does not want to be locked in
at this point, Mayor Callahan highlighted the fact there was
a lot of without prejudice votes. Mayor Callahan said it seemed
clear to him that it was not the will of Council yet, if it
ever will be, to go out and proceed with a Pension Bond. Mayor
Callahan commenting that maybe he read it wrong, stated he
would imagine if he went out and sold the bonds and locked
everybody into that decision “you’d all be pretty
upset with me…”. Mayor Callahan explained he is
trying to act within the spirit of what he thought Council
was instructing the Administration to do.

President Schweder thought someone should rule that this
is out of the ordinary and the Administration does not go
out and do what would be done after First Reading on a Bond
Issue.

Mayor Callahan indicated he would have the bond sale proceed
and that basically would do what he was hoping to do. Mayor
Callahan continued on to highlight the fact that would lock
City Council into the bond sale, unless Council reneges on
a $35 million bond that, he stressed, will have serious ramifications
in the financial markets which to him is not an option.

President Schweder commented that the Mayor’s plan
of attack from a practical standpoint makes sense. President
Schweder noted what he is saying from a procedural standpoint
is “you ought to have your legal department say, or
the bond counsel tell us, that there’s no problem with
delaying this.”

Mayor Callahan pointed out there was a discussion among
Council Members not to take this up at the November 16th City
Council Meeting and to talk about it at the December City
Council Meeting. Mayor Callahan indicated “I’m
going to need a definitive answer at that meeting…but
we’re not going to issue the bond because it doesn’t
seem like that’s the rule of Council.” Mayor Callahan
stated he is simply trying to get a read on what the wish
of Council is.

President Schweder explained he is saying that “under
our rules this is how you proceed. If you’re telling
me that your bond counsel says that it’s not necessary
for you to proceed in selling these or going out next week,
that’s all I want to hear, or that Mr. Spirk [,City
Solicitor,] says that.

Mr. Mowrer said “give us your budgets, and we’ll
decide quickly.”

Ms. Szabo, expressing her observation that the Mayor is
directing his remarks towards her, recounted she has voted
many times through the years without prejudice on the first
vote. Ms. Szabo, affirming she is not playing games, thought
she was being very nice voting to pass it so that “we
get going.”

Mayor Callahan, advising he did not mean to imply that Ms.
Szabo was playing games, commented that to vote without prejudice
on an Ordinance that affects the laws of the City is one thing,
but to change a vote with regard to a bond has serious ramifications
in the financial markets. Mayor Callahan stressed that he
does not want to see the City get into a situation where,
twice in one year, the City has gone out and sold bonds and
then not executed them. Mayor Callahan stated “that
would not be good for anybody.”

Ms. Szabo said “I’m sure all of us who said
without prejudice meant that exactly. All I was asking [about]
a delay there was to give us enough time to look at something.
This is too serious an item to suggest passing it over in
hurry.”

Retention Pond - Flooding

Mrs. Belinski referenced letters from two citizens at 1727
Greenleaf Street and 1741 Butztown Road and East Boulevard.
Mrs. Belinski related that one of the citizens advised that
her furnace, washer, dryer, furniture, flooring, back door,
fences, books, and materials were all lost due during the
storm from Hurricane Ivan when the retention pond overflowed
with more than 2 feet of water. Mrs. Belinski wondered whether
the City is going to address the concerns of these people.

Mr. Arcelay advised he has been working on the matter.

Michael Alkhal, Director of Public Works, confirmed that
he sent a response to the citizens on which City Council was
copied but apparently has not yet received.